JOINT VENTURES IN INDIA : JOINT VENTURES IN INDIA INDIAN FOREIGN TRADE Slide 2: Subhas- slide no- 3, 4 ,5 and 6.
Jeevraj - slide no – 7 and 8.
Vikram – 9, 10 ,11 and 12.
Neeraj – 13, 14 and 15.
Gopal – 16 and 17.
Mohit – 18 an 19.
Rajan – 20, 21 and 22
Shruti- 23 an 24.
Naved – 26 – 31. 6 December 2008 PGP/FW/07-09 2 INTRODUCTION : INTRODUCTION 6 December 2008 3 PGP/FW/07-09 A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and then they share in the revenues, expenses, and control of the enterprise REASON FOR JV’s : REASON FOR JV’s JV provides a lower risk option of entering
into a new country. .example- motorola enterred india in JV with blue star company, a brand with repute and vast distribution network.
It also provides an opportunity for both
the partners to leverage their core
strengths and increase the profits.
It also provides a learning opportunity
for both the partners. 6 December 2008 4 PGP/FW/07-09 Others Reasons… : Others Reasons… Technology.
Lower Risk of Geographical Location.
Access to Capital. 6 December 2008 PGP/FW/07-09 5 Types Of JV’s : Types Of JV’s Jointly controlled operations.
Jointly controlled assets.
Jointly controlled entities. 6 December 2008 PGP/FW/07-09 6 Pre-Liberalization Scenario : Pre-Liberalization Scenario Indian industry was unaware and unconscious about the danger of International Business.
Most businesses did not have economies of scale by global standards.
Control on collaborations restricted the choice of technology and manufacturing methods. 6 December 2008 PGP/FW/07-09 7 Post-Liberalization Scenario : Post-Liberalization Scenario International players become major threats because of their limitless resources.
Indian players has an option either to increase production or entering into JV with Global players.
Foreign players saw India as a land of opportunity to take advantage of low cost of production. 6 December 2008 PGP/FW/07-09 8 Need for setting up a Joint Venture : Need for setting up a Joint Venture 6 December 2008 PGP/FW/07-09 9 INTERNAL REASONS COMPETITIVE GOALS STRATEGIC GOALS INTERNAL REASONS : INTERNAL REASONS 1) Building on company's strength.
2) Spreading costs and risks.
3) Improving access to financial resources.
4) Economies of scale and advantages of size.
5) Access to new technologies and customers.
6) Access to innovative managerial practices. 6 December 2008 PGP/FW/07-09 10 COMPETITIVE GOALS : COMPETITIVE GOALS 1) Influencing structural evolution of the industry.
2) Pre-empting competition.
3) Defensive response to blurring industry boundaries.
4) Creation of stronger competitive units.
5) Speed to market.
6) Improved agility. 6 December 2008 PGP/FW/07-09 11 STRATEGIC GOALS : STRATEGIC GOALS 1) Synergies.
2) Transfer of technology/skills.
3) Diversification. 6 December 2008 PGP/FW/07-09 12 Slide 13: 6 December 2008 PGP/FW/07-09 13 Regulations governing JV in india Regulations governing JV in india : Press note 18
Denied the use of the automatic investment route and required a foreign investor who had an existing joint venture, trademark or technology transfer agreement in the “same or allied” field in India to seek FIPB approval for further investments in India.
The foreign investor also had to prove that the new investment would not harm the existing joint venture or its stakeholders and obtain a No Objection Certificate from the Indian partner. Foreign investors often felt that such restrictions held them hostage to their Indian partners.. 6 December 2008 PGP/FW/07-09 14 Regulations governing JV in india Regulations governing JV in india : Press note-1
Whereas Press Note 18 required government approval for investment in “same or allied” field, Press Note 1 requires government approval only if the foreign investor invests in the “same” field
While Press Note 18 completely denied the use of automatic route, Press Note 1 permits the automatic route where investments are made by venture capital funds registeredSEBI as Foreign Venture Capital Investors or where either of the parties have less than 3% investment in the existing joint venture or where the existing joint venture is defunct. 6 December 2008 PGP/FW/07-09 15 Regulations governing JV in india Regulations governing JV in india : Press note 1 cont..
Earlier the onus to justify and prove to the satisfaction of the government that the new proposal would not jeopardize the interests of the existing Indian joint venture partner or technology/trademark partner was only on the foreign investors or technology suppliers. Now,The onus to provide requisite justification to the govt. that the new proposal would or would not in any way jeopardise the interests of the existing partner or other stakeholders would lie equaly on both. 6 December 2008 PGP/FW/07-09 16 Regulations governing JV in india Regulations governing JV in india : Press note 1 contd..
Press Note 1 provides that all joint ventures entered into after January 12, 2005 may contain a “conflict of interest” clause in the joint venture agreement. Such a clause is critical because, if drafted well, it essentially provides the foreign investor with a type of no objection from the Indian partner regarding foreign investments in the “same” field. 6 December 2008 PGP/FW/07-09 17 Regulations governing JV in india Regulations governing JV in india : There are cases where indian partners of failed jv’s alleged to have made efforts to block foreign partners from ventures refferring to PN1, without any sound reasons.
In 2001 Walt Disney’s local paertner, the KK group objected to Disney’s attempt to establish a wholly owned subsidiary in india.
TVS group , for about three years, kept denying the much needed no objection certificate to suzuki to start a new investment venture in india after the TVS- Suzuki joint venture was called off in 2001.
Wadia group is objecting to Danone’s invstments in Bio- nutrition firm Avesthagen. 6 December 2008 PGP/FW/07-09 18 Regulations governing JV in india Problems of JV’s : Problems of JV’s Valuation Problems.
Division of management responsibility and degree of management independence
Changes in ownership shares. 6 December 2008 PGP/FW/07-09 19 Slide 20: 6. Dividend Policy.
7. Marketing and Staffing Issue.
8. Cultural Problems.
9. Multinationality problems. 6 December 2008 PGP/FW/07-09 20 Slide 21: Before entering a Joint Venture.. Both partners should appreciate the need for the joint venture.
The partners should clearly agree on the way the joint venture will be managed.
Take measures to be sure that the partner has a compatible work culture.
Be sure about the organisational behaviour of the partner to ensure synergies. Slide 22: It is important that both partners work towards a system based on trust and transparency.
To make for the long term success of the joint venture, it is also important that both partners are equally able to service its growing need for capital as the business expands.
Need to have a clear long term goal and set the terms and conditions of the JV.
Clarly define the role and responsibility of each partner. 6 December 2008 PGP/FW/07-09 22 Before entering a Joint Venture.. Indian Joint Ventures Abroad : Indian Joint Ventures Abroad India, is one of the largest sources of private investments in the Third World.
The maximum Indian equity that a IJV could have was fixed at 49 per cent.
IJVs were sought to be promoted as instruments of promoting Indian private interests abroad in term of
(i) acquiring larger assets in the host countries;
(ii) export markets; and
(iii) rich and high profit bearing investments.
this process India instituted export subsidies, export credit, finance, through bilateral agreements for IJV.
first case of an IJV abroad was the textile mill established by the Birla’s in Ethiopia commenced operation in 1964. The applications for joint ventures are approved by the: : The applications for joint ventures are approved by the: Inter-ministerial Committee under the Ministry of Commerce.
IJVs is covered by the Foreign Exchange Regulation Act, 1973 (FERA).
To facilitate and encourage IJVs, the Government of India has established economic divisions in the
Ministries of Commerce,
Industry, and Indian Embassies outside,
Indian Investment Centre (IIC)
The Federation of Indian Chamber of Commerce and Industry (FICCI) is also active in promoting the idea of joint ventures with other developing countries. Slide 25: Sanmar Chemicals Corporation Chemplast Sanmar Ltd TCI Sanmar Chemicals LLC, Egypt
Sanmar Speciality Chemicals Ltd Performance Chemicals Intec Polymers ProCitius Research Bangalore GeneiCabot Sanmar Ltd
Sanmar Shipping Ltd Sanmar Holdings Ltd Slide 26: TAXATION
JOINT VENTURE Slide 27: PROVISIONS RELATING TO TAXATION OF JOINT VENTURE
COMPUTATION OF TAXATION INCOME OF AOP/BOI
TAX PROVISIONS RELATED TO SHARES OF A MEMBER. Successful joint venture require: : Successful joint venture require: Each participant has something of value to bring to the venture.
The participants should engage in careful preplanning.
The agreement or contract should provide for flexibility in the future.
There should be provision in the agreement for termination including buyout by one of the participants.
Key executives must be assigned to implement the joint ventures.
A distinct unit be created in the organizational structure which has the authority for negotiating and making decisions 6 December 2008 PGP/FW/07-09 28 Example :- : Example :- Virgin Group and Tata Tele Services
Tyson Foods and Godrej Agrovet
Marks & Spencer and Reliance Retail of India 6 December 2008 PGP/FW/07-09 29 Slide 30: 6 December 2008 PGP/FW/07-09 30 Concerns of doing a JV : Concerns of doing a JV Change of strategy of either of the partners creats rift in certain JV’s
The JV between Hotline group(india) and Haier(china) missed at that point.
Haier planned to increase its share to 49% to introduce wide ranges of products including washing machines, multi-split A?S’s etc.
Haier wanted to focus in imports.
Hotline disagreed to theses, the JV broke off before the operations started
Haier re-entered indian market with a 100% susidiary in 2003. 6 December 2008 PGP/FW/07-09 31 Concerns of doing a JV : In some cases accecss to technology or capital provides sufficient confidence in the partners to go alone, making the JV redundant
For example- JV between TVS group (INDIA) and Suzuki(japan) formed in 1983 was called off in 2001. 6 December 2008 PGP/FW/07-09 32 Concerns of doing a JV Concerns of doing a JV : AT times either of the partners are accused of breaching the terms of the JV< creating tensions in it.
For example- Wadia accused Danone of using the popular Britannia brand Tiger products outside india, not permitted as per the existing agreement between the two. 6 December 2008 PGP/FW/07-09 33 Concerns of doing a JV Concerns of doing a JV : There are cases of JV falling apart due to lack of synergy.
For example- the 40:60 JV between Godrej and GE formed in 1993 , was called off in 2001because-
The JV failed to meet the projected turnover of Rs 35 billion and managed only 1.83 billion in 1998-99.
There was poor cultural integration between the two partners. GE alleged lack of professionalism in the Indian partner. 6 December 2008 PGP/FW/07-09 34 Concerns of doing a JV Reasons for failure of a joint venture : Reasons for failure of a joint venture Inadequate preplanning for the joint venture.
The hoped-for technology never developed.
Agreements could not be reached on alternative approaches to solving the basic objectives of the joint venture.
People with expertise in one company refused to share knowledge with their counterparts in the joint venture.
Parent companies are unable to share control or compromise on difficult issues 6 December 2008 PGP/FW/07-09 35 Example :- : Example :- Lufthansa and Modi Group
Daewoo and Proctor & Gamble
LML Piaggio 6 December 2008 PGP/FW/07-09 36 Slide 37: 6 December 2008 PGP/FW/07-09 37 FUTURE of JV : FUTURE of JV The number of joint ventures will continue to increase in the near future
More and more companies are adopting the JV approach as a part of their growth strategies.
Foreign companies can benefit mutually by combining their technological and monetary resources and taking advantage of respective market conditions. 6 December 2008 PGP/FW/07-09 38 Slide 39: 6 December 2008 PGP/FW/07-09 39 THANK YOU SUBHAS GORAI VIKRAM KAUSHIK
NEERAJ KR. SAH GOPAL PODDER
JEEVRAJ SINGH RAJAN BANSAL
MOHIT SOMANI NAVED ANWAR